I wonder if many have read a book called “Street Smarts” by Laurence Connors and Linda Raschke (it’s a good book and anyways I am fan of Linda!). I just couldn’t resist myself to put a very nice piece Connors had written about GURUS! I found this very interesting. Hopefully you would also find it as an eye opener and save yourself form the disease called “Guru-itis”. Here are the excerpts from the book read on;
“I learned that very lesson in 1987. I became very sick with a mental illness known as
“Guru-itis." This affliction occurs when a normal, somewhat intelligent individual
loses all sense of his abilities and becomes subservient to someone he believes is of
greater power. In my case, I became a willing follower of a market guru who had
accurately predicted the bull market move of 1984-1987. In late August 1987, with
the Dow at all-time highs (2700 range), my guru told his disciples that a
grand-supercycle move would bring the Dow up another 700-800 points in a short
time.
Up until that point in my life, I had been fairly conservative in my personal
finances and was lucky enough to have accumulated a comfortable amount of
money. After my guru made his pronouncement via a newsletter, I immediately took
a piece of paper and began plotting my course to riches. I divided 800 points (the
expected grand-supercycle move) by 8 (the approximate amount of Dow points
needed to move the OEX index up or down one point) and came up with the number
100. I then quickly multiplied 100 times $100 (the amount of money one OEX
option increases in value on a per point move) and came up with $10,000.
Then I really became excited. If my guru's predictions came true, I would
make $10,000 for every OEX contract I owned. The next day I did what every good
disciple should do. I began aggressively buying OEX calls. September calls,
October calls, multiple strike price calls-you name it, I bought it. Within a few days,
nearly 30 percent of my net worth was in these calls. I remember being so excited at
the amount of money I was going to make that I could not sleep at night.
Coincidentally, at that time, my wife (who was five months pregnant with our
first child) and I had scheduled a two-week vacation on the island of Maui. The
morning we boarded the plane the market was up about 15 points, just as my guru
said it would be. The six-hour flight was the longest flight in my life. I couldn't wait
to land to find out how many thousands of dollars (tens or hundreds?) I had made
that day. When we arrived at our hotel, I called my secretary to get the good news.
The conversation went something like this:
ME: Carmel, was the market up 50 points today or did it go up 100?
CARMEL: (silence)
ME: Come on, Carmel, give me the good news.
CARMEL: Down 52 for the day, Larry.
ME: Sure, Carmel. No really ... how much did it go up?
CARMEL: Larry, I'm not kidding.
ME: Quote me the prices on my options, Carmel.
CARMEL: (She quotes the prices of the options).
ME: Sh..t!
I mumbled good-bye to my secretary and immediately called my guru's hotline,
"Not to worry'' said the main man. 'The grand-supercycle high predicted for the near
future is still intact." Even though I had taken a beating for the day, I began my
vacation assured that riches were just around the corner.
The next day, my wife and I spent the morning looking at condos in Maui. I
figured every 28-year-old, soon-to-be-millionaire trader should own at least one. By
the time we had finished our house hunting expedition, the markets were closed for
the day, and I called my secretary again for the quotes.
CARMEL: I have good news and bad news.
ME: Give me the bad news.
CARMEL: The market lost another nine points today.
ME: What the hell is the good news?
CARMEL: It was down more than 35 points earlier.
This time, I didn't mumble anything. I immediately hung up the phone and
called the guru's hotline. Once again, he assured us that the grand supercycle was
still intact. (I believe psychiatrists refer to this as "denial.") To make a long story
short, this scenario took place day after day. What should have been a very relaxing
vacation turned into 14 days of misery. (We all know what happened to the market
shortly thereafter.)
The message from us is this: do not let your decisions be swayed by the
predictions of gurus and experts. By following your own counsel and only trading
the strategies that you are comfortable with will you be able to avoid situations like
the above story and maximize your abilities as a trader.”
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